Atacama floods: Lithium impact analysed

Freak storm in the world’s lithium hub, Chile’s Atacama Desert, is expected to cause short term shipment delays but no long term impact – Benchmark

After a freak storm and flooding in Chile’s Atacama Desert temporarily closed one of the world’s leading lithium operations, fears of further supply squeezes and upward price pressure this year have been allayed after operations resumed.

SQM SA’s lithium plant in northern Chile, responsible for nearly 30% of the world’s lithium chemical output, was closed as a preventative measure due to the heavy rain and flooding the region experienced last week. The company has since re-opened the operation after repairing electrical damage from the storm and reconstructing some access roads damaged by the weather.

The area is also home to Albemarle's (formerly Rockwood Lithium) lithium operation which is adjacent to SQM.

The Atacama region’s climate is the driest on earth and ideal for lithium production which extracts subsurface mineral brines into evaporation ponds, before concentrating the brine into a liquor which is then processed into lithium carbonate or hydroxide.

SQM has highlighted transportation difficulties to and from the mine sites as the major reason behind the closure.

Benchmark Mineral Intelligence understands that the extent of the flooding on the Atacama salt flats where the evaporation ponds are located has been minimal with lithium processing plants built to withstand variations in brine concentration.

The flooding episode, which was the worst rain related disaster in the area for 80 years, also temporarily closed major copper mines in the area including those operated by Antofagasta and Codelco.

Short term delays, limited long term impact

In Benchmark’s opinion, the flooding episode in the Atacama will add to a short term lithium supply squeeze as shipments are delayed, but is expected to have no long term price impact.

The situation appears to have posed more of a logistical challenge to mining companies in the region rather than a serious disruption.

The most significant influencing factor on price, at present, is the new supply coming onto the market from Orocobre Ltd’s in Argentina.

The speed of Orocobre’s ramp up, which is expected to reach a rate of 17,000 tpa lithium carbonate by the year’s end, will dictate the level of supply-side pressure on prices.

Increased demand in lithium carbonate and hydroxide is being experienced as a result of rising lithium-ion battery output. The rapid uptake of batteries in smartphones and tablets, together with the slow rise of electric vehicles over the last 18 months, has led to today’s tight market.

With Orocobre yet to ramp up, there has been no significant new supply in this time period. The last lithium mining/extraction operation to come into existence prior to this year was SQM in 1996 (Atacama, Chile).